Midstream gas transport regulations vary - Beckley, Bluefield & Lewisburg News, Weather, Sports

A much overlooked issue in the Marcellus shale development is transportation of the gas from the well.

Kurt Krieger, a Steptoe & Johnson attorney who focuses on interstate natural gas pipelines, said his clients are often concerned about how pipelines are going to be economically regulated.

"The issues I tend to deal with clients is that they want to know how are the pipelines that I'm going to build or buy from somebody going to be regulated? When I say regulated, I mean economic regulation."

Krieger wrote a paper addressing the issue in which he details the various types of regulation that could be faced by companies trying to build or purchase gathering lines.

"Depending upon the configuration of the pipelines, the manner in which they are used to transport natural gas, and the type of customer transporting the gas on the pipeline, the answer could be: (1) no regulation, (2) regulation by a state commission or (3) possible regulation by (the Federal Energy Regulatory Commission) over services that are otherwise regulated by state commissions, or over the entire pipeline facility," Krieger said. "And with respect to state regulation, as one might imagine, the extent of state regulation varies by state."

The West Virginia Public Service Commission has elected to not regulate gathering lines, but the definition of a pipeline can vary.

Economic regulation of pipelines, Krieger explained, means the types of services they may offer and under what sort of contracts and terms of service.

"The challenge has been that a lot of the pipelines that are being built are called gathering pipelines," Krieger said. "Generally speaking, in West Virginia and in Ohio, gathering pipelines are not subject to economic regulation. The problem is that the definition of what is gathering is different between states and FERC."

Krieger said the lack of uniformity can cause confusion, particularly when companies begin to build gathering lines that cross state lines.

The Marcellus shale formation lies under large swaths of West Virginia, Ohio, Pennsylvania and to a lesser extent, Maryland and New York. The Utica formation, currently less developed than Marcellus, but believed to have perhaps even more potential, is broader in geographical area.

"It is important to determine the extent to which existing pipelines or ones to be built may be subject to regulation by FERC or the state or commonwealth in which they are to be located," Krieger wrote. "Prior determinations as to the extent of regulation made (or failed to be made) by prior owners may be invalid."

Krieger said some confusion at the state level, particularly for states without well-developed case law on economic regulation of pipelines, should look to federal standards.

"At the FERC level, gathering is exempt from federal jurisdiction and FERC gets to decide what is and is not gathering. From their perspective, a federal perspective, they have a very well-developed body of case law on what is defined as gathering," he said. "There's no reason that a state commission dealing with an economic regulation or siting issue should not look to that body of law if their own state's law doesn't make clear what is gathering."

He said West Virginia is generally not difficult to deal with as far as pipeline construction goes.

"I think West Virginia is very friendly to gathering pipeline companies in that, like I said, gathering pipelines are generally exempt from economic regulation and there's no requirement to file with the PSC to construct a gathering pipeline," Krieger said. "Most of these companies like not being subject to those regulations. The trade-off is that they don't have eminent domain authority."

Lack of an eminent domain authority in seeking right-of-way for pipelines, Krieger said, is creating some interesting-looking pipeline maps.

"They can run into difficulties with landowners trying to determine the route of the pipeline," Krieger said. "If you look at maps you can see the gathering companies drawing some very squiggly pipelines."